Local Politics

New Laws Protect Homebuyers From Unethical Lending

Posted August 16, 2007

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— Homeowners facing foreclosure in North Carolina obtained some new safeguards Thursday, as Gov. Mike Easley signed three consumer-protection bills into law.

The three new laws are designed to rein in abusive lending practices, provide consumers with more information and protect unsuspecting homebuyers and tenants from unfair fees and penalties.

"A home purchase is the biggest and most important investment most people will ever make, and it's not one where you can afford to make a mistake and certainly not one you can afford to be tricked," Easley said.

Lenders foreclose on about 80 homes in Wake County each week, and default rates on home loans have soared by 250 percent since 1998, officials said.

Brian Endicott of Youngsville, for example, found his family buried in foreclosure when his daughter's sudden illness put him behind on payments. He said the lender deceived him with endless hidden penalty fees.

"The fees just continue to add up. It just buries you deeper and deeper. There's really no way out of it," Endicott said. "They get somebody in a situation. (The consumers) get over a barrel, (and) they don't know what else to do."

Attorney Carlene McNulty of the North Carolina Justice Center, who works to help foreclosed buyers, said mortgage brokers play a role in many questionable loans.

"They get their money up front, so it doesn't matter whether the person is able to pay it back," McNulty said. "(Consumers are) told that their payment will be one thing, and it turns out not to be true."

Easley said laws need to be continually updated as lenders find new, often unfair, fees that they can charge borrowers.

"We're having to outlaw more and more as we go along," he said. "North Carolina has the best predatory lending (law) in the country, but what we're missing is national legislation."

The new laws require more disclosure by lenders and allow the state Banking Commission to void a mortgage loan if authorities determine borrowers weren't given accurate information upfront. The legislation also prevents loans to consumers based on low, teaser interest rates and makes fraudulent lending practices a felony offense.

"What they're doing to some of the people taking out these loans, causing them to lose their houses, they ought to be in jail," Easley said. "We're going to enforce this vigorously."

The laws also make it easier for borrowers to sue for illegal lending practices.

But McNulty and other consumer advocates said the laws can go only so far. Borrowers need to better understand what they can afford and the pitfalls of interest-only and adjustable-rate mortgages, they said.

5 Comments

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  • Nancy Aug 18, 2007

    "Think about it. Take away the only mortgage options some people have. Try to put brokers out of business. Interest rates are already high, housing values are flat or declining, and then you want to add a transfer tax. Want to see the foreclosure rate in this state go up... you have just created a perfect storm."

    I agree with some of what you're saying, however, ANY person who gets an ARM or other 'creative' financing method on the largest purchase they will probably ever make in their lives and do not understand the long term implications, should probably never bought a home in the first instance.

    Further, a lot of these people who are finding themselves in trouble are middle class to wanted to climb the ladder quicker and bought more house than they could truly afford.

    Let them learn the lesson the hard way. I don't believe in rescuing people who don't know what they're doing, either in a mortgage situation or abused credit purchasing.

  • ohmygosh Aug 17, 2007

    Correct me if I am wrong. It is not true this affords any protection. Most mortgages are issued by companies not based in NC. Federal Law changes are needed. NC cannot regulate interstate commerce.

  • MortgageLO Aug 16, 2007

    "Homeowners facing foreclosure in North Carolina obtained some new safeguards..."

    NO, what you did was take away the few options homeowners already facing foreclosure had left. Rep. Brad Miller said that instead of getting a "subprime loan" people should file for bankruptcy. Yeah, that's what you need to do... instead of take responsibility and try to get back on your feet, get a bankruptcy that will destroy your credit for 7-10 years.

    And if these "protections" were so important, WHY ARE BANKS EXCLUDED FROM THE LEGISLATION?

    This government is in the pockets of North Carolina's big banks, at the expense of small business and mortgage brokers, most of whom help people.

    Think about it. Take away the only mortgage options some people have. Try to put brokers out of business. Interest rates are already high, housing values are flat or declining, and then you want to add a transfer tax. Want to see the foreclosure rate in this state go up... you have just created a perfect storm.

  • mrtwinturbo Aug 16, 2007

    We're having to outlaw more and more as we go along," he said. "North Carolina has the best predatory lending (law) in the country, but what we're missing is national legislation."

    Hmmm....but what about this so called transfer fee? They could start by not even enacting that one

  • dianadarling Aug 16, 2007

    People need to read what they sign when they sign the loan papers. ADJUSTABLE means just that. Interest only means you never pay the principle down. I guess we need the government to protect us from ourselves.